6 Attributes of a Best-in-Class Accounts Payable Operation Resulting from Portal-based E-Invoicing

Transcription

1 6 Attributes of a Best-in-Class Accounts Payable Operation An AP & P2P white paper Sponsored by

2 Process improvement is on the accounts payable department s agenda. Improving processes and automating manual processes ranked among the top accounts payable concerns for 41 percent and 33 percent, respectively, of businesses surveyed for the Institute of Finance and Management s (IOFM s) 2016 AP Key Performance Indicators Survey. Manually processing paper invoices results in costly and error-prone keying of invoice information, lost or misplaced invoices, long approval and exception resolution cycles (which result in late fees and missed discounts), compliance and security risks, high paper storage and retrieval costs, delays uploading data on approved invoices to downstream systems, timeconsuming supplier inquiries regarding invoice and payment status, and difficulty implementing operational best practices. The focus on accounts payable automation also is no surprise when you consider that businesses are looking for ways to increase profit margins in an economic environment where revenue growth is hard to come by. Most businesses surveyed by Ardent Partners agree that deploying new or improved technology is critical to taking accounts payable to the next level of performance. It is for this reason that electronic invoicing continues to experience tremendous growth worldwide. But how can an accounts payable department be sure that it is getting the most from its automation initiatives? Six attributes separate best-in-class accounts payable operations which typically have the highest levels of automation from their peers. This white paper details the six attributes of best-in-class accounts payable departments, and shows how electronic invoicing contributes to each one. 1. Fast Cycle Times Top-performers process PO-based invoices 29 percent faster than their peers, according to The Hackett Group. Top-performers process non PO-based invoices 33 percent faster than their peers Invoice cycle times are among the top accounts payable concerns of one-quarter (25 percent) of businesses surveyed for IOFM s 2016 AP Key Performance Indicators Study. This is no surprise when you consider that invoices-paid-to-terms is the top metric against which accounts payables staff is measured (according to IOFM), and that more than 70 percent of CFOs want to capture more early-payment discounts (according to PayStream Advisors). On-time payments eliminate late-payment penalties, create early payment discount opportunities, strengthen supplier relationships, and provide buyers with greater leverage when it is time to renegotiate contracts with key suppliers. But 84 percent of organizations pay suppliers late, with one of the main reasons being the lack of necessary systems and automation to facilitate timely payment, according to MasterCard. 2

3 While 88 percent of buyers surveyed by MasterCard believe they have a social responsibility to pay promptly, it still takes an average of 10 days from invoice approval for payment to take place. Worse, it takes 45 percent of accounts payable departments between 6 days and 25 days to process a single invoice, from receipt to payment approval, according to the Institute of Financial Operations (IFO). Invoices without a PO or for non-goods orders which typically involve an approval process encompassing multiple individuals take a particularly long time to process. The Association for Image and Information Management s (AIIM s) Automating AP/AR Financial Processes report found that non-po based invoices require a median of 2.3 approvers. But nearly a quarter of the organizations surveyed by AIIM noted that it takes at least four individuals to approve non-po based invoices. Manually routing invoices to multiple approvers also increases the chances of penalties for late payments, raises the chance that invoices will be lost or misplaced, and increases the odds of calls or s from suppliers regarding invoice status. Thirty-four percent of organizations surveyed by AIIM cited completing the sign-off routing in time as the biggest challenge with non- PO based invoices. Similarly, 24 percent of organizations identified losing invoices in the loop as the biggest challenge with non-po based invoices, while 20 percent of organizations cited finding the originator of an invoice for sign-off as the biggest challenge with non-po based invoices. Another motivation for faster invoice cycle times is better cash management and discount capture opportunities both among the top concerns of business surveyed by IOFM. Slow invoice approval cycles result in costly late fees and shut businesses out of early-payment discount opportunities. 51% of businesses surveyed for PayStream Advisors s einvoicing Benchmarking Report identified faster approval cycles as the greatest benefit of electronic invoicing. 45% of businesses surveyed by PayStream Advisors achieved higher percentages of on-time payments as a result of migrating to electronic invoicing. ON-TIME LATE Electronic invoicing accelerates the cycle times for PO-based and non-po based invoices by enabling businesses to receive invoices in any format, from any location. Images of invoices received via paper also can be consolidated into an electronic invoicing platform, as well as data extracted from paper invoices via optical character recognition (OCR). Electronic invoicing solutions automatically extract supplier, header and line-item data (such as amounts) from invoices that are received electronically. Invoices then are matched with POs and/or goods or services receipts. Invoices that require approval (such as non-po-based invoices) or exceptions handling are automatically routed based on pre-configured business workflows. And electronic invoicing ensures that invoices requiring review are always sent to the appropriate person; Atradius reports that 21.4 percent of payment delays in the United States are the result of invoices being routed to the wrong person. Compared to capturing data from paper invoices and physically routing the invoices for approval, electronic invoicing greatly accelerates cycle times for PO-based and non-po based invoices. 3

4 2. Low Invoice Processing Costs It costs top-performers 63 percent less than their peers to process a single invoice ($2.06 per invoice for top-performers versus $5.54 per invoice for peers), according to The Hackett Group. Thirty-seven percent of senior finance executives surveyed by Ardent Partners identified reducing invoice processing costs as their top accounts payable priority. Fifty-three percent of those surveyed want to reduce costs through the automation of accounts payable processes over the next 24 months. 72% of best-in-class organizations can automatically route invoices for approval, a 2015 study conducted by research and advisory firm Ardent Partners found. APPROVED DENIED Reducing financial operations costs also a priority for senior executives: controllers rank reducing costs as their second most-important priority, according to IOFM s Senior Finance Executive Survey. The root of the high costs of invoice processing is that businesses receive 63 percent of their invoices as paper, according to IOFM. Manually processing paper invoices results in costly and error-prone keying of invoice information, lost or misplaced invoices, long approval and exception resolution cycles (which result in late fees and missed discounts), compliance and security risks, high paper storage and retrieval costs, delays uploading data on approved invoices to downstream systems, and time-consuming supplier inquiries regarding invoice and payment status. Manual payables environments also make it difficult, if not impossible, for organizations to implement best practices. Not surprisingly, 17 percent of payables departments say invoice data entry is their top challenge, while invoice coding is the top challenge for 15 percent of payables departments, IOFM finds. Electronic invoicing reduces the costs associated with invoice processing. In fact, businesses surveyed by Commerce Bank said that cost reduction is the top reason to automate accounts payable. Electronic invoicing eliminates the need for scanning software, hardware and ongoing maintenance. Data is automatically extracted from electronic invoices, eliminating the need for data entry or manual validation. Additionally, electronic invoicing solutions validate invoice data at the supplier s end (earlier in the process than paper-centric invoice processing approaches), increasing first-pass match rates and reducing exceptions. Some 26.3 percent of payment delays are the result of incorrect data, Atradius finds. And suppliers can instantly flip (or convert) electronic POs into electronic invoices, making it a snap for them to submit invoices electronically while streamlining invoice processing for buyers. The electronic invoicing solution also automatically posts matched invoices without operators having to input invoices data into an organization s enterprise resource planning (ERP) platform. Uploading this information electronically eliminates the risk of manual data-entry errors. 4

5 Best-in-class accounts payables organizations automatically post more than 80 percent of their electronic invoices without human intervention ( straight-through ), Gartner research finds. These are some of the reasons that 46 percent of businesses surveyed for PayStream Advisors einvoicing Benchmarking Report identified lower invoice processing costs and reductions in full-time equivalents (FTEs) as the greatest benefits of migrating to electronic invoicing. The reduction in invoice processing costs is one of the primary reasons that businesses automate, according to IOFM s 2015 Accounts Payable Technology Survey. 3. High Staff Productivity Top-performers process 175 percent more invoices per full-time equivalent (FTE) than their peers (25,047 invoices per FTE versus 9,091 invoices per FTE, respectively), The Hackett Group finds. Controllers view accounts payable as the most manual and paper-intensive finance and administration function, and the one that requires the most time and effort, IOFM reports. The results of IOFM s 2016 AP Key Performance Indicators Study illustrate the inefficiencies of manual invoice processing. Of the 69 full-time equivalents (FTEs) employed in accounts payable departments (on average across all locations), all but one FTE performs invoice data-entry. The root of the problem is that businesses receive most of their invoices in paper, , PDF, or fax format. Receiving invoices as an , PDF, or fax is no better than paper, unless an automated solution is in place to automatically identify and extract data and convert it to a digital format. Otherwise, information needs to be manually keyed, and paper documents need to be physically routed, stored and maintained. In many businesses, paper invoices are handled multiple times during the approval process and are frequently lost or pushed to the bottom of an approver s in-box. It is no wonder that more than three-quarters of senior finance executives surveyed by CFO Research in 2015 said their financial operations rely on a considerable amount of manual intervention. Electronic invoicing eliminates the data entry, paper handling and routing, and physical document storage required in a manual operation, in turn, significantly improving employee productivity. Electronic invoicing solutions automatically extract and validate invoice data, match invoices with POs and receipts, and post approved invoices. This eliminates the need for operators to input invoice data into an organization s enterprise resource planning system, as well as the risk of manual data-entry errors. Any invoices that require review, approval or exceptions resolution are electronically routed to specific individuals based on pre-configured rules. Dashboards automatically alert users to bottlenecks and invoices approaching their due-date. 5

6 The technology tracks overall processing efficiency, including critical metrics for staff productivity and average invoice approval cycle times. All of these improvements improve overall productivity and frees staff to focus on strategic activities while allowing the organization to reinvest savings in high-value business support and analysis. Thirty-nine percent of finance executives surveyed by CFO Research identified improved business process execution among the most important benefits realized by automating financial operations. Manually processing paper invoices drains employee productivity with lots of data entry, paper handling and routing, back-and-forth phone calls and s to resolve disputes, supplier inquiries, document filing, retrieval and maintenance, and searching for misplaced invoices. PRODUCTIVITY GAUGE The productivity improvements provided by electronic invoicing are a big reason that half of all businesses that have automated accounts payable achieved payback in nine months or less and 22 percent of businesses achieved payment in just six months, according to AIIM s research. 4. Few Supplier Inquiries Top-performers have 62 percent fewer supplier inquiries than their peers (255 supplier inquiries per 10,000 invoices for top-performers versus 667 for their peers), according to The Hackett Group. In a paper-based accounts payable environment, suppliers can never be sure of the status of the invoices or payments (or that the buyer even received their invoice!) without a phone call or . As a result, more than 10 percent of senior finance executives identify difficulty handling high amounts of supplier inquiries as their top accounts payable challenge, a 2014 IOFM survey found. Electronic invoicing enables organizations to automatically communicate invoice and payment status tasks that can otherwise eat up valuable time and frustrate staff of suppliers and buyers alike. With an electronic invoicing solution or an electronic invoicing network, suppliers receive confirmation that their electronic invoice was successfully submitted. What s more, suppliers can use a portal to view the status of invoices and payments at any time, as well as view any messages from the buyer. The Hackett Group s accounts payable benchmarks find that selfservice visibility into invoice and payment status via electronic invoicing reduces inbound supplier inquiries by nearly one-third, and results in a 30-percentage point increase in suppliers for which standard payment terms apply. Self-service visibility also can build supplier trust, and head off miscommunication that can lead to costly repercussions. In fact, automated invoice status was cited as the driver for implementing a supplier portal for over a third of businesses surveyed by the Institute of Financial Operations (IFO). Electronic invoicing solutions reduce supplier phone calls and s in other ways. For instance, trading partners can use an electronic invoicing portal to collaborate and share information online to resolve disputes. 6

7 Eighteen percent of organizations cite a high number of exceptions among their top payables challenges, with another 18 percent of organizations identifying missing information on invoices as a top challenge, according to PayStream Advisors Electronic Invoicing Benchmarking Report. Resolving disputes in a paper-based environment can take days, and potentially involve multiple escalations, straining trading partner relationships, necessitating time-consuming calls and s between parties, and resulting in missed opportunities for early-payment discounts. Electronic invoicing eliminates the time-consuming back-and-forth through online collaboration. With an electronic invoicing solution or electronic invoicing network, multiple internal staff can review and approve an invoice simultaneously in a controlled manner. Security controls ensure that access to specific data is restricted only to those who are authorized to view and approve invoices. All of this reduces phone calls and s from suppliers regarding invoice or payment status, while accelerating invoice approval and exceptions resolution, and decreasing paper handling costs. Moreover, 21 percent of organizations say greater efficiency and professionalism in dealing with suppliers is the biggest benefit of automating accounts payable processing, according to AIIM. 44% of businesses are satisfied with their electronic invoicing portal, while 17 percent said they are extremely satisfied with the technology, IFO reports. 5. High Straight-Through Processing Rate Top-performers achieve overall first pass match rates 13 percent higher than their peers (88 percent for top-performers versus 78 percent for peers), according to research from The Hackett Group. In a paper-based accounts payable environment, staff must collect and manually reconcile PO, invoice and payment information. This laborious and time-consuming process is necessary for effective working capital management, and helps prevent fraud and duplicate payments. However, matching invoice line items with data in a PO system is the top point of pain for 28 percent of accounts payable departments, according to IOFM s 2015 AP Technology Survey. Twenty percent of businesses report that obtaining proof of delivery documents required for matching is their biggest accounts payable challenge. What s more, 20 percent of businesses identified reconciling duplicate invoices among their top challenges in processing paper invoices, according to IOFM s research. Electronic invoicing solutions drive straight-through processing by automatically extracting invoice data, checking for duplicate invoices, validating supplier information, and calculating the line-item data on invoices. The data extracted from invoices is automatically matched with POs and proof of delivery documents. Information can be validated against data sources, business rules, and applications. 7

8 Any exceptions are electronically routed to a queue for inspection and data correction. Additionally, electronic invoicing validates invoice data at the supplier s end (earlier in the process than paper-centric invoice processing approaches), increasing first-pass match rates and reducing exceptions. Some 26.3 percent of payment delays are the result of incorrect data, Atradius finds. And portals enable suppliers to instantly flip purchase orders into electronic invoices, making it a snap for them to submit invoices electronically while streamlining invoice processing for buyers. This technology is why 82 percent of best-in-class organizations can automatically perform two or three-way matching, and that 70 percent of best-in-class organizations can process invoices straight-through without human operator intervention, according to 2015 research from Ardent Partners. 40% of businesses process less than half of their total invoice volume straightthrough, without human operator intervention, according to IOFM research. 6. High Discount-Capture Rate Top-performers capture seven times more early-pay discounts as a percentage of spend as their peers (0.16 percent for top-performers versus 0.02 percent for their peers), The Hackett Group finds. Liquidity management remains a top priority for controllers, according to Aberdeen Group. Eleven percent of senior finance executives surveyed by IOFM in 2014 reported that their organization regularly tracks and reports on alternative financing options. And there is a good reason for that: businesses that take advantage of a discount term of just 1/10 net 30 earn an annualized 18 percent return surpassing the earnings available in today s money markets. The savings potential from early-payment discount programs can be as high as 14 percent if all customer invoices are settled on optimum payment terms, according to research by MasterCard. Unfortunately, 17.6 percent of controllers surveyed by IOFM reported that the inability to effectively maximize early-payment discounts from suppliers was their accounts payables department s biggest challenge. The Hackett Group finds that, the [cash management] performance gap between the top 25 percent and the bottom 75 percent is significant. Under-performing companies could free $776 billion, or an average of $0.78 billion per company, by matching the top performers in their respective industries. Consider that 80 percent of the businesses surveyed by IOFM in 2016 receive invoices that offer early-payment discounts. In fact, 5 percent of those surveyed said that more than 25 percent of the invoices their business receives offer discounts for early-payment, while 3 percent of businesses say between 16 percent and 25 percent of the invoices they receive offer early-payment discounts. 8

9 But the majority of all businesses capture less than 21 percent of all earlypayment discount offers, and 12 percent of businesses are unable to capture any early-payment discounts, IOFM s 2016 AP Key Performance Indicators Study found. These results are more sobering when you consider that 79 percent of businesses say their suppliers offer payment terms of 30 days or more. Only 27 percent of businesses surveyed by IOFM capture more than 80 percent of early-payment discount offers. The heart of the problem is that in a manual environment, invoices are typically approved outside of the discount window. It also is difficult to facilitate discount offers in a manual environment. Automation enables buyers to maximize their working capital with more early-payment discount opportunities. Buyers create an early-payment discount program through an electronic invoicing solution or electronic invoicing network and invite their suppliers to sign up. Suppliers selfservice sign up in just a few minutes. Once an invoice is approved by the buyer, the supplier is presented with options on when they want to receive their money. The sooner the payment, the bigger the discount the supplier must give; the longer the time until payment, the smaller the discount. 44% of buyers that responded to a survey conducted by MasterCard indicated that they would prefer to pay immediately in exchange for receiving a higher discount. DISCOUNT IOFM s 2013 AP Department Benchmarking & Analysis found that moving to higher levels of automation clears the way for businesses to pay more invoices within the discount period. Not surprisingly, 42 percent of businesses plan to deploy dynamic discounting within the next two years, according to a study by Ardent Partners titled, epayables 2015: Higher Ground. Conclusion With revenue growth hard to come by, businesses are looking for ways to increase profit margins. Accounts payable automation is a good starting point. Technologies such as electronic invoicing enable businesses to reduce the costs associated with data-entry, paper handling, routing and storage and responding to supplier inquiries, increase staff productivity, and capture more early-payment discounts through accelerated invoice approval cycle times. Accounts payable departments can be sure they are getting the most from their automation investments by measuring themselves against their peers in six critical areas: invoice approval cycle times, invoice processing costs, staff productivity, the number of supplier inquiries they receive, the percentage of invoices posted straight-through, and the percentage of discounts captured. Electronic invoicing optimizes accounts payable performance in all of these areas, positioning businesses to become a top-performer. 9

10 About Invocus - the Sponsor Invocus helps companies make the transition from paper based Accounts Payable processes to electronic invoicing. We are proud to have as our clients some of the best-of-breed companies across verticals such as Banking and Finance, Insurance, Electronics, Health and Pharma, Education and more. We are the einvoicing division of Zycus, a leading global provider of complete Source-to-Pay suite of procurement solutions. The Invocus Advantage About the AP & P2P Network The AP & P2P Network is the leading provider of training, education and certification programs specifically for Accounts Payable, Procure-to-Pay, Global and Shared Services professionals as well as Controllers and their F&A teams. Membership to the AP & P2P Network ( provides comprehensive tools and resources to financial operations professionals who manage or are deeply involved in the Accounts Payable and Procure-to-Pay process. No Paper, No Calls Higher Discounts E-Invoicing On-the-Go Focus areas include best practices for every AP & P2P function; AP & P2P metrics and benchmarking data; tax and regulatory compliance (e.g. 1099, 1042-S, W-9, W-8, Sales & Use Tax, Escheatment, VAT, Canadian Tax, Internal Controls); solutions to real-world problems challenging your department; AP & P2P automation case studies; member Q&A networking forums, Ask the Experts, calculators, and more than 300 downloadable, customizable AP & P2P policies, flowcharts, templates and internal control checklists. A membership to the AP & P2P Network provides tangible ROI to any organization saving your organization time, money and keeping you compliant. Over 10,000 professionals have been certified as an Accredited Payables Specialist or Manager (available in English, Simple Chinese and Spanish), and Certified Professional Controller through the AP & P2P Network and its parent company, the Institute of Finance & Management. AP & P2P Network also hosts the Accounts Payable and Procure-to-Pay Conference and Expo (Spring and Fall), designed to facilitate education and peer networking. The AP & P2P Network is produced by the Institute of Finance and Management (IOFM), which is the leading organization providing training, education and certification programs specifically for professionals in Accounts Payable, Procure-to-Pay, Accounts Receivable and Orderto-Cash, as well as key tax and compliance resources for Global and Shared Services professionals, Controllers and their F&A teams. With a universe of over 100,000 financial operations professionals, IOFM is the trusted source of information in the rapidly evolving field of financial operations. 10